“FATCA” or Foreign Account Tax Compliance Act is a United States (US) law aimed
at prevention of tax evasion by US citizens and residents (“US Persons”) through
use of offshore accounts. FATCA obligates foreign financial institutions (FFIs),
including Indian financial institutions to provide the US Internal Revenue Service
(IRS) with information on the accounts of to report accounts held by specified US
Persons. Since domestic laws of sovereign countries, including India, may not permit
sharing of confidential client information by FFIs directly with US IRS, the U.S.
has entered into Inter-Governmental Agreement (IGA) with various countries.The IGA
between India and USA was signed on 9th July, 2015, which provides that the Indian
FIs will provide the necessary information to Indian tax authorities, which will
then be transmitted to USA automatically. The IGA between India and USA has become
operational effective August 31, 2015.The impact of FATCA is relevant not only at
the point of ‘on-boarding’ of investors, but also throughout the life cycle of the
investor account or folio. Any event which impacts customer tax status or change
of key information may trigger impact under FATCA. Further, FATCA due diligence
is to be directed at each investor (including joint investor). Once a given investor
is identified as a reportable person/ specified US person, all his folios will have
to be reported – including those where he may be a joint holder. Notably, in case
of folios with joint investors, the entire account value of the investment portfolio
will be attributable under each such reportable person.